Services PMI inches up to 47.5 in August from 45.9 in July, Nikkei says

Hit by the new tax regime Goods and Service Tax (GST) for second consecutive month, Nikkei India Services PMI Business Activity Index registered another monthly decline in activity.

The country's services activity stood at 47.5 in month of August marginally picked up from 45.9 in July, Nikkei said on Tuesday.

IHS Markit, in a statement, said, "Rising from 45.9 in July, however, the latest figure was indicative of a softer rate of reduction that was moderate overall. The downturn was often associated with the implementation of the GST, though there were also mentions of shortages of inputs."

In the month of July, the seasonally adjusted Nikkei India Services PMI Business Activity Index plunged from June’s eight-month high of 53.1 to 45.9, its lowest level since September 2013. 

For the month of August, Nikkei index showed that manufacturing production rebounded from July’s downturn, growth was insufficient to offset the contraction in services activity. 

Private sector output subsequently declined again. However, rising from July’s 100-month low of 46.0 to 49.0 in August, the seasonally adjusted Nikkei India Composite PMI Output Index was consistent with a weaker pace of reduction that was only slight.

Pollyanna De Lima, Principal Economist at IHS Markit, said, "Services acted as a drag on the private sector economy in August, with the reduction in business activity offsetting growth of manufacturing production. While July’s downturn in the goods producing industry proved to be a temporary blip, services remained trapped in contraction.

“The underlying trend for services is one of uncertainty. Businesses are holding back on investment, leading to falls in employment. At the same time, input costs are increasing and firms are unable to fully pass these on due to competitive pressures. It’s not all doom and gloom, however, as activity, new business and employment showed much slower rates of reduction than those noted in the prior survey period.”

Moreover, as per the report, overall, the service providers retained an optimistic view towards the year-ahead outlook for activity. Survey participants indicated that the new taxation system and advertising campaigns are anticipated to support growth, but there were worries about competitive pressures.

"Finally, payroll numbers in the service economy decreased in August amid evidence of the non-replacement of voluntary leavers. The decline in employment was the second in successive months, but job shedding eased to a marginal pace as the vast majority of service providers left headcounts unchanged. Conversely, manufacturers took on extra staff at the quickest rate in nearly four-and-ahalf years," the report said.